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Mogul Minute 11/09/2016

November 9 | 2016

Here at RealtyMogul.com, we keep our finger on the pulse of all things real estate, from finance to technology and everything in between. We make a point of sharing interesting articles and think pieces among RealtyMogul.com staff to help our team stay abreast of the market, and ahead of the curve.

So we thought, why not share some of these insights with you, our partners?

Got A Minute? Here’s some recommended reading with key points from the content:

Concerns over future rising interests are already starting to impact REITs as October share prices were lower month-over-month and all sectors posted lower returns (except for infrastructure REITs). However, REITs continued to outperform the S&P at the end of October as the S&P 500 total return came in at 5.9%, while the total return of the FTSE/NAREIT All REIT Index was 7.1%. This marks ten consecutive months that REITs have posted returns higher than the overall S&P.

Industrial (+26.7% in total returns YTD) and single-family residential (+26.6% in total returns YTD) have been two of the better performing sectors among REITs.

National multifamily rent growth for October was 2.6%, essentially unchanged from September. While rent growth remains above the long term national growth rate of 2.2%, the overall trend is that markets are continuing to moderate (per the chart below):

National occupancy decreased 23 basis points in October, however, this follows the typical trend for the month as occupancy has declined in the 20 basis point range from September to October in five of the seven years since 2009.

At the market level, Sacramento and Riverside continue to rank at the top of markets with the highest annual effective rent growth. Las Vegas has moved to number three on the list as it continues to grow its business hub. Memphis moved from number 12 down to number 7 over the month while Charlotte replaced Nashville on the list to crack the top 17.

*Rank is based on annual effective rent growth in October 2016 for Axiometrics’ Top 50 Markets based on number of units—the more major markets. Selected other markets’ rankings are based on Axiometrics’ Top 120 Markets. Axio tracks properties in more than 500 MSAa throughout the country. *Source: Axiometrics

More bad news for Houston as the amount of vacant or subleased office space now sits at 28%. According to JLL, this is up substantially from the 20% figure we saw in early 2012 and is not surprisingly being attributed to layoffs, bankruptcies, and mergers in the oil-and-gas sector. The Energy Corridor, the area 15 miles west of the downtown along Interstate 10, is feeling the hurt the most as the availability rate is 41%.

Though things aren’t as bad as Houston experienced in the 1980s, don’t expect things to better going forward. “The situation is getting worse. We’re actually expecting even more sublease space to come on the market in the coming eight to 12 months.” - Bruce Rutherford, an international director at JLL who advises energy companies.

How has the U.S. commercial real estate market changed during the Obama years?(JLL)

Recent interview with John Sikaitis, the Managing Director for Research, Americas at JLL on some of the changes we have seen over the past eight years in CRE. Some notable quotes:

On how particular markets have changed: “Driven by cyclical and high-growth industries, notably tech and energy, markets such as Austin, Nashville, the Bay Area, Denver, Seattle and Houston not only recovered lost jobs faster than the U.S. as a whole, but currently record employment more than 10 percent higher than their peaks during the mid-2000s. Meanwhile, markets such as Charlotte, Portland and Raleigh-Durham have transitioned to high-value service economies with defined identities and output, resulting in employment being an average of 10.1 percent higher than during the previous cycle.”

On some of the big challenges ahead: “A few policy issues are developing bipartisan support, namely infrastructure investment and defense funding. The urgent need to repair and modernize America’s infrastructure will be a critical issue faced by the next administration. Due to sequestration, defense budgets dropped by 24 percent from 2010 to 2015. With both Democrats and Republicans pushing for a reinvestment in defense and intelligence through a repeal of all or part of sequestration, commercial real estate markets in Northern Virginia, Baltimore, Hampton Roads and parts of Orlando, San Diego, Los Angeles and Seattle-Bellevue would benefit.”